Africa’s debt distress rising - WB
THE Covid-19 is expected to markedly increase the vulnerability of the Sub Saharan region to debt distress, the World Bank Group (WBG) has warned.
It said Government debt had already risen to 60 percent of Gross Domestic Product (GDP), on average, in 2019 almost double the level in 2013.
According to the Group, the composition of debt had also become riskier, with a greater share owed to non-concessional lenders at a higher cost.
These strains, it explained in its latest edition released this month, would be compounded by the increased borrowing required to fund larger deficits.
“In addition, borrowing costs across the region have risen sharply given heightened risk aversion, placing further pressure on fiscal capacity.
“Significantly larger, and more expensive, government debt burdens than last year mean that the risk of sovereign debt defaults has increased, and may rise further if the projected recovery in activity were to disappoint,” the WBG said.
It also said severely constrained government resources, as well as restrictions due to social-distancing measures, could lead to a loss of critical public services during the pandemic and further weigh on activity.
The Group indicated that these included provision of water, electricity, and normal health care services.
“The financing of current account deficits has become more difficult this year, as heightened risk aversion has caused significant capital outflows and tighter financial conditions.
“This is particularly challenging for countries dependent on portfolio inflows or official development assistance several countries also depend on remittance inflows, which are expected to slow markedly,” the WBG said.
It warned that if these conditions were to continue for a prolonged period, the lack of access to external financing could weigh heavily on foreign reserves, while those without adequate buffers could face balance of payment stress.
It said fiscal deficits in the region were projected to deteriorate sharply this year, doubling on average to roughly five percent of GDP.
“Larger deficits reflect increased public spending to help limit the transmission and economic consequences of the virus, sharp falls in revenue as mitigation and other control measures have dampened activity, higher interest payments, and in some instances, the impact of weaker exports on government revenues,” the group said.